Resuscitating a virus-ravaged economy – the answer lies in the soil and the exports it generates

Westpac is forecasting 200,000 jobs will be lost in NZ as a result of the response to the coronavirus pandemic.  Chief economist Dominick Stephens estimates economic activity during the four week lock-down would decline by a third, despite the government and the Reserve Bank having “done a lot to calm financial markets”.

Stephens said his feeling was that GDP in the three months to June would fall by more than 10%— “which is completely unprecedented in our lifetimes”.

The  Westpac  diagnosis  reinforces  the argument  advanced  by  Point of   Order   in  one of  its most intently  read  posts:  “After the lock-down the  economy’s  recovery  will be  dependent on dairy farmers and  their  milk”.

This post  stressed  that  when the   time   comes for the   government to  start  planning  how the  economy   can recover,   it  should be   working hard   to ensure  the  dairy  industry,  along with other  key  pillars of the  primary  sector,  gets  every encouragement to  increase   production.

Many of those who  read  the post  agreed that the  volume  of criticism  dairy farmers  had to  absorb  because  of the methane  emissions of their herds  and  the dirtying of  rivers  and streams  reached    absurd  levels and  affected  industry  morale.

Even  early  into the  lock-down,  ministers   should be  calling  on their  top  advisers   to find ways  to trigger a  rapid, and lasting, expansion  of  those  key exports  which have  for  so long  been  vital  in sustaining the country’s standard of living. The hard truth is  that, given  the loss  of tourist industry  receipts, NZ will find it  almost impossible to repay the debt now being incurred   within a  generation  from the impact of the Covid-19 pandemic, unless it can substantially  increase   overseas income  from elsewhere  in the export sector

Stuff  reported   Finance Minister Grant Robertson as saying   that a nation-building-type programme  would be a significant  element of future policy, when it comes  to  economic recovery over  both the medium, and  long, term  He has tasked Regional Development Minister Shane Jones and  Transport  Minister Phil Twyford  with  finding infrastructure  projects  that could be pulled   forward to boost economic  activity and employment.

The problem with that  is    NZ  may have run out of  borrowing capacity   to fund  those kind of projects—unless lenders  have some confidence  they are   going to  be repaid.

Stuff   went on to  report  Robertson  as  being  reluctant to expand on  his thinking—  but he did  concede  NZ  will  have to reassess fundamentally  what is  done  on  these  shores.  Infrastructure  and   housing programmes  take time  to  plan and  design  before  contracts  can be let and  workers  employed.

Expansion  of  existing   export  industries  will start  yielding cash  directly.   And there  is  plenty of  scope   to  do this if the right techniques   are  encouraged. Scaled-up  hydroponics  could vastly  increase  horticulture output.

Dairy  production  could also  be  boosted if   the techniques of  the smartest  farmers  were  applied to those   further down  the  chain  and  more  irrigation schemes were  built.

Then, too,   the  government  could step  back , for  the time being,  from  its punitive  proposals  on freshwater regulation.  For that  matter,   why doesn’t the  government  moderate  its   GM stand   so that  scientists  can  find  through gene  editing  the best clovers and  grasses, as  well as the  most  productive  animals,  to ensure   higher output  from the  land?

Why  isn’t  Agriculture  Minister   Damien  O’Connor in  the  vanguard promoting  the  elevation of  agricultural  industries to  spearhead   economic recovery?  There’s  little   need  to be concerned, as climate change  warriors were,  about methane  emissions,  because   the  collapse of the global tourist  industry  means  carbon emissions  from  airlines, the worst  polluters of all, have dropped so  dramatically that most countries  will now  hit  their Paris  targets.

In  the  immediate   stage,  for   the  dairy  industry,   production  may be  tailing  off  because  of  drought  in  some of the  country’s  major  dairying regions.  Yet   with  the  exchange rate  moving  in the favour of exporters the government should be active  in  urging farmers  in other regions less affected by drought to extract  the  maximum output   from  the feed available.

As  in  wartime  farmers   will  respond  in  what  is the  nation’s  worst   economic   crisis,  provided  they  believe  there is real leadership   coming  from the  top.

5 thoughts on “Resuscitating a virus-ravaged economy – the answer lies in the soil and the exports it generates

  1. Can you start a column or a sticky page to talk about the business responses? There are many good businesses who have gone to zero revenue for at least four weeks with no reference points to estimate with any certainty what the immediate post cv-19 business environment is for their business. They are thinking I can’t take the wages subsidy for the employees of the business because I can’t guarantee jobs until 30 June and I can’t pay them without sales. Taking bigger loans from the bank to support an operation that is suspended (if actual bank support is available – and that’s a case all of its own) won’t make sense if there’s no obvious timeline to resumption of business and so on. Grant Robertson’s wage subsidy is a tiny piece of a large puzzle and it does little to solve the conundrum of stopping good businesses from ceasing. Many desperate businesses have grabbed the subsidy without understanding how they are going to carry on to at least June 30. They will pay it all to the employees as required. But on top the employer needs to pay the ACC and Kiwisaver levies, how? Suggesting businesses should pay 80% of normal wages is pie in the sky. Some key issues are: Most businesses pay employees more than $585 per week. Those employees need more than $585 to pay their own fixed costs. What gives?
    Usual HR legislation hasn’t been suspended has it? How can an employer summarily reduce wages by 20%, or more, without consultation and agreement? None if this is addressed by the government. The aftermath will be in hindsight. When aggrieved employees later go to a tribunal saying they were not properly consulted and so it will go on. It’s a nightmare for people who a couple of weeks ago had good businesses employing lots of people and now have no certainty or decent data points to think of anything other than winding up operations as the only logical path.

    The business support mechanism suggested by Michael Reddell needs urgent consideration.

    Like

  2. Some good ideas which will sadly have to await a change of government. Now, let’s get back to our four weeks’ free trial of socialism shall we? Wonderful to hear Shane and Phil are onto it….so reassuring at this difficult time.

    Like

  3. the dairy market in the USA has crumbled, prices are weak, there will be no dairy lead way out of this. Bank economists are B/S merchants. China’s economy is export orientated and that is going to mean big trouble for their economy.

    ‘Milk & Dairy Markets
    Red ink flooded LaSalle Street this week. The dairy markets were decimated. Every Class III and Class IV contract on the board scored new life-of-contract lows. The selloff was steep and widespread, but second-quarter contracts suffered most. May Class III plummeted $1.44 to a painfully low $13.87 per cwt. May Class IV fared even worse, falling $1.79 to an unbearable $12.28. At today’s prices, dairy producers in a region with roughly half of their milk check derived from Class III and half from Class IV will earn just $13.08 per cwt., and $13.83 on their Class I share.’

    Like

  4. You cannot be for real Grant. Tasking Shane and Phil, the self-appointed champion pork-barreller of the provinces and the kiwinotbuilder, with planning how to save our economic future – give me strength. As a recent letter to the DomPost Editor proposed, put the tried and tested experience of Key and English and suitable others like Michael Reddell in charge of the recovery plan now, but that won’t happen with this Govt so devoid of economic insight and talent. If they did that and had the ability to add the now unfortunate Michael Cullen as their balance the Govt would look and be wise – I’m not holding my breath.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.